Recently, I observed a rather interesting market phenomenon. The Renminbi (RMB) has been appreciating at a somewhat fast pace lately, and the central bank has finally taken action.

On the morning of February 27, the central bank issued an announcement stating that it would reduce the foreign exchange risk reserve requirement ratio for forward foreign exchange sales—from 20% directly down to 0. This seemingly simple policy adjustment instantly had an impact in the market. On that day, offshore RMB depreciated by 0.3%, once falling from 6.839 to 6.859. Put simply, the central bank is putting the brakes on the RMB’s rapid rise.

Why has the RMB been appreciating so strongly? I see two main reasons. Externally, the US dollar has been weakening continuously. After the Federal Reserve launched its rate-cutting cycle, the US dollar index fell from 100 last year to 95.5 in January this year. Internally, China’s economic resilience has supported the RMB. The export structure is being upgraded, manufacturing competitiveness is strengthening, and in 2025 alone, the trade surplus is expected to reach $1.19 trillion. With so many dollars flowing in, companies began converting foreign exchange in large quantities—selling USD to buy RMB—which further pushed up the RMB. This forms a so-called pro-cyclical effect: USD depreciation leads to more foreign exchange conversions, and those conversions in turn promote further appreciation—like a snowball rolling downhill.

But this is not good news for export companies. If the RMB appreciates too quickly, export competitiveness declines. I saw that some export-oriented listed companies had foreign exchange exchange-translation losses of 130 million yuan in Q4 2025 alone. Although they used hedging tools to recover 53 million yuan, they still ended up losing between 70 million and 80 million yuan. That is why the central bank needs to step in to stabilize the exchange rate.

So what exactly is the foreign exchange risk reserve requirement for forward foreign exchange sales? Simply put, it is the deposit margin that banks need to pay to the central bank when conducting forward foreign exchange business. For each forward foreign exchange deal a bank makes, it must freeze a portion of interest-free funds at the central bank, which increases the bank’s costs. Now that the central bank has lowered this ratio from 20% to 0, banks’ costs drop significantly.

What would happen then? The cost for companies to purchase foreign exchange forward would also decrease. In other words, companies that want to lock in exchange rates in advance can now buy forward USD at a cheaper price. This would encourage more companies—especially small and medium-sized enterprises—to hedge exchange-rate risks. As companies and banks sign more forward contracts, banks, to hedge their risk, will buy USD in the spot market (i.e., the immediate FX market), which increases market demand for USD and eases the pressure for RMB appreciation.

From the data perspective, in 2025, China’s foreign exchange market trading volume reached $42.6 trillion, and enterprises’ foreign exchange hedging ratio rose to 30%—both at historical highs. This indicates that enterprises’ awareness of managing exchange-rate risk is awakening, and this policy adjustment is expected to further raise this ratio. For import companies that already have slim profit margins, it effectively increases profits directly.

What about us investors? I think the core point is just one: manage exchange-rate risk based on actual needs, and don’t treat exchange rates as a tool for speculation. The interest-rate differential between USD deposits and RMB deposits is currently roughly 2%. As long as USD depreciates against the RMB by more than 2%, the USD interest spread advantage disappears. If you already hold USD assets, you can consider gradually closing out positions in several batches at different exchange-rate levels. As for trading stablecoins like USDT against RMB—this logic is the same. Genuine demand is what matters.

For people with real currency-use needs—for example, studying abroad, traveling, or shopping overseas—you can keep the corresponding USD quota. But if you’re only holding USD to capture the interest-rate spread, during periods when the RMB is strong you should moderately reduce your USD positions.

Overall, the central bank’s adjustment is essentially a policy “return.” From 2015 to now, the central bank has adjusted the foreign exchange risk reserve requirement ratio 5 times. From the large volatility after the exchange-rate reform to today’s increasing RMB exchange-rate flexibility, two-way fluctuations have become the norm. With concrete actions, the central bank has demonstrated that it can guide the exchange-rate trend at critical moments.

With such a complicated external environment, whether you’re an individual investor or an enterprise, you need to learn to coexist with exchange-rate volatility. I think the key line the central bank has always emphasized is especially important: adhere to the neutral exchange-rate risk management philosophy and do a good job in exchange-rate risk management. This isn’t empty talk—it’s a required course for every market participant.